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Trailing drawdown (order)

Trailing Stop Order

Risk management

Definition

A stop order that automatically moves with the price when the trade is profitable, at a fixed distance, and does not move back. It locks in some profit without deciding in advance where to exit. Do not confuse it with the trailing drawdown: the trailing stop is your tool, and the trailing drawdown is an account rule.

Detailed explanation

Define a distance, for example 8 points. When the price moves in your favor, the drawdown moves up with it, and when the price retreats, the drawdown stays in place until it is hit and exits. The confusion with Trailing Drawdown is common because both are trailing. The difference: the company's trailing drawdown tracks the account's peak and determines when the account is disqualified, and the trailing drawdown tracks the price of a single trade and determines when it closes.

An example from the prop world

Long ES at 6,000 with a trailing drawdown of 8 points: the drawdown starts at 5,992. The price rises to 6,012 and the drawdown rises to 6,004. When the price retreats to 6,004, the trade closes with a profit of 4 points, $200 per contract.

Risk calculator

How many contracts to open against your stop and the account's loss limit

Trailing drawdown

A drawdown threshold that rises with the account's peak and never goes down. As the account makes money, the floor follows it up at the same distance, until a lock point the firm defines.

סטופ לוס

An exit order that closes a losing trade at a predetermined level. In a prop account, a stop is not just good risk management: it's what separates a bad trade from crossing the drawdown threshold and failing the account.

Order types: market, limit, and stop

A Market order fills immediately at the next available price. A Limit order fills only at the price you set or better, so it may not fill at all. A Stop order becomes a Market order when the price touches the level you set, which is how a stop loss is placed.

OCO and Bracket orders

A Bracket is an entry order that comes with a stop and a profit target. OCO (One Cancels Other) links the two exit orders: when one is filled, the other is canceled automatically.

End-of-day (EOD) trailing drawdown

End-of-day drawdown (EOD Drawdown) is a trailing maximum loss limit rule in which the loss threshold moves up only once a day, based on the closing balance. At most firms, however, the threshold itself is enforced in real time, so touching it during the trading day fails the account.

Intraday trailing drawdown

This is a risk management limit calculated continuously in real time throughout the trading day. It tracks the account's peak balance (including realized profits and unrealized profits from open positions), so the loss threshold always rises together with the peak balance while keeping a fixed distance, but never goes down; crossing this threshold at any moment (even for a single second) causes immediate failure or closure of the account.